SKU Rationalization – what is it & why is it important?

Stock Keeping Unit (SKU) is a process in the inventory management system which includes numbering a product or service for the inventory system.

In this article, let us understand more about SKU and Why is it Important in an inventory management system.

What is Stock Keeping Unit?

As discussed in the first paragraph, SKU is Stock Keeping Unit. SKU is basically an identification of a product or service by assigning an alphanumeric code to it. Here, every product will be assigned with a unique SKU code in order to be recognized easily by the customers too.

Also, if a company has different variants of their products they can have different SKU assigned to those product variants to track them efficiently.

Leading organizations like Procter & Gamble & Unilever are achieving great results by incorporating SKU in their inventory management system, which resulted in SKU becoming popular in almost all companies irrespective of size.

With the help of the below image, you can find an SKU code of any product on their barcode.-

SKU identification
SKU Visualization


What is SKU Rationalization? 

SKU Rationalization is a process through which we can identify whether a product has to be kept in the stocks or should it be left out, depending upon its profitability.

The SKU rationalization process uses various analytical tools to determine whether the product should be kept in or should be removed from the inventory or stock.

The SKU Rationalization helps businesses to analyze the performance of their products and understand how much revenue each of the products is contributing to their business.

For this, the process studies the data such as the transactional history, inward-outward entries, production costs, etc., against the benefit of selling the products.

How to implement SKU Rationalization?

There are no strategies or an SOP for the incorporation of SKU, but we can follow some important steps while using SKU. Let us have a look at those steps below: –

  1. Pick a category – Before implementing this process, first, you need to select a product category for which you wish to analyze the performance and assign them a unique code.
  2. Target the right audience set for the selected product, and come up with a list of the products which are most popular among your selected audience.
  3. After identifying the products, make a list of the previous SKU’s you have previously sold to the selected audience and review it so that you can understand its performance and come to a conclusion like what are the drawbacks, what are the strengths, etc. 
  4. Once you do the required analysis, eliminate the requisite drawbacks and things that are unnecessary consuming time in your overall process.

Why is SKU Rationalization Important?

As we have discussed what SKU is, let us now understand SKU rationalization benefits. 

The Stock Keeping Unit helps businesses to analyze their products/services performance and come to a conclusion about the fate of the said product or service.

With the inclusion of SKU Rationalization, it makes you take smarter and innovative decisions for your business operations and helps to improve various sections of business generations.

Following are some of the key benefits of SKU Rationalization: –

  • Reduces inventory costs 
  • Can eliminate the inventory management workflows
  • Shorter lead time
  • High accuracy
  • Efficient shipping process
  • Cost-Effective
  • Accurate real-time reports

This is how Stock Keeping Unit (SKU) helps you make important decisions to make your inventory management more efficient and cost-effective.

For making your inventory management system more efficient and result-oriented, SKU rationalization is the best way to implement and you can see the result in real-time. 

Learn more about the inventory management process and tools at zap ERP and take a step forward towards a profitable business.

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